Situation for employees before the legal change

As a consequence of an Act of 18 December 2015 relating to occupational and statutory retirement pensions, employees are obliged to take up their occupational pension when they take up their (early) statutory pension. This is also the case for employees younger than 65 who have reached a ‘full career’ of 45 years’ duration and can therefore claim a full statutory pension. When they claim their (full) statutory pension, they are also obliged to take up their occupational pension lump sum. That is where a problem arose. Because these employees took up their occupational pension lump sum before the legal retirement age, it was taxed at 16.5% instead of at the more advantageous rate of 10% (plus municipal taxes). The legislator considered this was unfair and remedied the situation with a law amending the Income Tax Code 1992 as it relates to the notion of statutory retirement age, which was adopted on 14 February 2019.

After the change in the law

The legal retirement age is no longer only defined as reaching the age of 65 (or 66 from 2025 and 67 from 2030) but also as ‘fulfilling the conditions for a full career.’ If the employee remained active until the age at which he or she meets ‘the conditions for a full career’, his or her occupational pension lump sum will be taxed at the advantageous rate of 10%, even if he or she takes it up before turning 65.

A ‘full career’ needs to be interpreted on the basis of pension legislation and means 45 career years in habitual or main employment. This means the employment must have been at an intensity of at least one-third of a full-time job (that is, 104 full-time day equivalents per year).

Impact on institutions for occupational retirement provision and insurers

The scales of withholding tax still need to be adjusted to reflect this legal change. For the time being, withholding tax has not yet been adapted, although this will undoubtedly be done in the future. From that point, institutions for occupational retirement provision and insurers will need to take this rule into account. The question arises as to how they will be able to check conclusively whether an employee meets the requirements for a ‘full career’.

Action point

It is important to keep this new rule in mind. Once the withholding tax scales have been adapted, institutions for occupational retirement provision and insurers will need to check if an employee meets the requirements for a ‘full career’.